Starbucks v. McDonalds
On January 7, 2008 the Wall Street Journal reported that McDonalds was introducing coffee bars to 14,000 of its U.S. restaurants . This is a huge project helping McDonalds in its “coffee war” with Starbucks. Like Starbucks, each coffee bar will have its own barista (someone who prepares and serves coffee) and flaunt cappuccino and espresso machines. The company estimates $1 billion in additional sales revenue will be added to the company’s income statement . McDonalds has benefited from several years of strong growth, having nearly $22 billion in sales in 2006. In 2007, the company’s stock rose nearly 22%, sitting at around $54.
The move to compete with Starbucks, however, still carries some risk. Some McDonald loyalists say it could slow down service at McDonald's restaurants, taking away from its “fast food” standard. Others may begin to think McDonalds is stepping into a new realm of service, looking to acquire a higher standard of customer, who in return will be looking for a higher quality menu and service.
In 2001 the company tested McCafes in the United States to sell specialty coffee at McDonald's restaurants . But the drinks were not available at the drive-through windows that provide 2/3 of its business. McDonald's thinks its new plan has a greater chance of success.
Shares of Mcdonald’s stock over the last two trading weeks (1/7-1/18) have dipped slightly, closing at just above $58 on 1/7/08, and $52.40 on 1/18/08 respectively. The company, as expected, has been trading on relatively high volume over the week and YTD. McDonald’s is a blue chip company, meaning it is a well-established company with constant earnings and not broad liabilities. McDonalds also pays a yearly cash dividend, which has increased attractively in the last five years ($.40 in 2003 compared to $1.50 in 2007). The tone of the trading of MCD has been a bit weak as of late, experiencing about a 6% loss, however I believe this is do the concerns of...